Reduce Bajaj Auto; target of Rs 4800: Prabhudas Lilladher

Prabhudas Lilladher's research report on Bajaj Auto

We marginally increase our FY24-FY26E EPS estimates by ~1% to factor in higher domestic realization and continued 3W volume strength. Bajaj Auto’s (BJAUT) 2Q revenue (Rs. 108bn) was largely in-line, while EBITDA margin (19.8%) was slightly higher than PLe (19.4%) and the street (19.5%). EBITDA margins benefitted from inventorisation and better mix QoQ, which was partially offset by lower export ASP. Export volumes recovered QoQ and BJAUT is expecting only gradual improvement, given macro challenges in those markets. BJAUT saw export realization falling ~7% QoQ given increase in mix from lower ASP markets like African regions which have low ASP and margin. Furthermore, increase in EV volumes will impact overall margins. We expect moderation in margin in 2H from current levels. Until now, BJAUT had been witnessing a sharp increase in its 3W mix, which was aiding margins; we expect this trend to start moderating sequentially.

Outlook

We expect BJAUT’s domestic premium segment volumes to grow (similar to the industry), market share gains in this and fast ramp-up of EVs could make us turn constructive on the stock. BJAUT is currently trading at 18.5x FY25, on the higher side versus history. Maintain ‘REDUCE’ with a TP of Rs 4,800 (Rs 4,750 earlier) at 16x Sep-25E EPS.